CBS agrees to buy CNET Networks for $1.8b
Firm plans to merge websites
NEW YORK - CBS Corp. agreed to buy CNET Networks Inc., a technology news provider, for about $1.8 billion to become one of the 10 largest website companies.
CNET investors will receive $11.50 a share, or 45 percent more than Wednesday's closing price, the companies said yesterday. CBS, based in New York, will combine its news, entertainment, and sports websites with CNET sites including ZDNet, GameSpot.com, TV.com, Chow, and Search.com.
CBS chief executive Leslie Moonves is buying a profitable business that increased sales 10 percent last year to $405.9 million as he seeks acquisitions to make up for a drop in television and radio advertising. CBS shares fell 2.4 percent on investor concern the company is paying more than 100 times CNET's estimated earnings for fiscal 2008.
"Given the growth performance by CNET, the price is too rich," said Robin Diedrich, an analyst at Edward Jones & Co. in New York. She recommends investors hold CBS shares and doesn't own any. "It's a bold move by CBS management given their position, because the company is struggling for growth."
CNET, based in San Francisco, jumped $3.46 or 44 percent. CBS fell 59 cents to $24.23 on the New York Stock Exchange.
CNET agreed to the takeover as it tries to fend off a looming proxy fight with Jana Partners LLC, its largest shareholder. The activist hedge fund, founded by Barry Rosenstein, called for a change in strategy as the stock lost about half its value over two years.
Jana is reviewing the CBS transaction, spokesman Charles Penner said. Last month, the New York fund rejected an offer from CNET to give it a seat on its board.
CNET's main website focuses on technology news, consumer advice, and reviews of products such as mobile phones and computers. In total, the company's sites were the 16th most visited in the United States in March, drawing 34.6 million unique visitors, according to researcher ComScore Inc. CBS had 28.6 million unique visitors, ranking it 24th.
"They offer us significant exposure to the fastest-growing advertising sector," Moonves said on a conference call yesterday. "We have taken a major leap forward to become a top 10 Internet company for the future."
Digital distribution of television programs and movies will result in "rich and recurring value," CBS chairman Sumner Redstone said in a February speech. Viacom Inc., the other company he controls, has built up the websites for its MTV and Comedy Central to become the 13th most visited US Internet property, according to Reston, Va.-based ComScore.
The price is 18 times CNET's 2008 estimated earnings before interest, taxes, depreciation, and amortization, Jason Bazinet, an analyst at Citigroup Inc. in New York, wrote yesterday in a note. By comparison, he said shares of Bankrate Inc. trade at 12 times estimated earnings and WebMD Health Corp. trades at 14 times earnings.
CBS had $2.26 billion in cash at the end of the first quarter. The deal, expected to close in the third quarter, won't threaten future dividend increases, Moonves said. Last month CBS raised its quarterly dividend to 27 cents, a two-cent increase.
On the company's earnings conference call April 29, Moonves forecast that online revenue will top $50 million this year from about $30 million in 2007. CBS had total revenue of $14.1 billion last year.
